Sino–Foreign Strategic Alliance Types and Related Operating Characteristics: Implications for Research and Practice

The reality of foreign business operations in the People's Republic of China (PRC) is challenging foreign investors and Chinese alike. Barely a decade ago, as part of massive economic reform, China's doors were cautiously cracked open to the West after an extended period of isolation. The doors have remained open, but the form and degree of foreign investment and involvement in China remain a controversy. Some Chinese prefer less foreign involvement than others, and a small but growing segment even prefer the wholly foreign-owned enterprises. Despite their preference for wholly-owned subsidiaries (WOSs), most transnational corporations (TNCs) engage in some form of strategic business alliance with Chinese enterprises or the government, although the WOS category is growing. These Sino-foreign alliances include (1) equity joint ventures; (2) contractual joint ventures; (3) process/assembly-buyback agreements; (4) long-term licensing agreements; (5) dynamic technology transfer agreements; (6) compensation trade agreements including counter-trade and counter-purchase; and, (7) exploration and research consortia. While reduction of risk, economies of scale, vertical quasi integration, and overcoming government-mandated investment and trade barriers are all identified as motivations for the use of alliances (Beamish, 1985; Contractor and Lorange, 1988), Teagarden (1990) found that the perception of government mandate was the primary motivator for alliance formation in a sample of sixty-seven